Investment involves selection of the right kind of instruments / schemes with the objective of maximising returns on investments. The instruments carrying higher risk usually yield higher returns but they may not yield any return or may even result in loss. The decision regarding the type of instrument/investment depends upon the risk taking capabilities of individuals. As the risk taking capability vary from person to person according to their risk taking nature, age, family and other responsibilities/obligations, availability of surplus funds for investment etc., the choice of investment instruments will vary from individual to individual. For example, a retired person may accord priority to invest major portion of his savings in more safe i.e. less risky and regular income yielding investments than in higher income yielding and more risky investments.
Tax Planning involves making investments with the objective of minimising the tax liability and maximising returns. Everyone should try to do tax planning to maximise his income by saving on taxes.
The amount of tax to be paid is related to the source(s) of income viz. income from salary, income from business, income from house property, interest income, income from dividends etc. and the amount and type of investments made. The income from different sources is taxed differently. There are provisions exemption of certain incomes, deductions from aggregate income and from the tax computed on total income. The deductions/exemptions are available on different tax saving instruments/schemes are also different. Therefore, tax planning will involve selection of right kind of instruments/schemes for investing the surplus income/savings keeping in view the source(s) of income, period for investing the funds, type and amount of tax benefits available, liquidity and safety of investments etc.
Exemptions and Relaxations Available:
Deductions allowable from Taxable Income : For details of exemptions available under chapter VI A of I T Act, please Click Here.
Incomes not forming part of Total Income: For details of exemptions available under section 10 of I T Act, please Click Here.
Deduction available on Retirement Benefits: For details of exemptions available on retirement benefits, please Click Here.
Deductions Allowable from Income Tax: For details, please Click Here.
Tax Saving Options:
Bank Deposit Options:
Public Provident Fund (PPF) Accounts: :
The deposits in PPF accounts are eligible for relief under section 80C of the Income Tax Act.
The interest earned on deposits in PPF accounts is fully exempted from income tax.
The interest and principal in a PPF account cannot be attached by a court decree.
Please Click Here to know more about PPF accounts and for PPF Withdrawal Calculator.
Special Bank Term Deposit Scheme (BTDS):
The investment under this scheme in banks is eligible for relief under section 80C of the Income Tax Act.
Please Click Here to know more about the Special Bank Term Deposit Scheme.
Post Office Deposit Options:
Public Provident Fund (PPF) Accounts: :
Please see above under Bank Deposit Options
National Savings Certificates NSCs:
The investment in NSCs is eligible for relief under section 80C of the Income Tax Act.
The interest accrued on NSCs, though taxable, is treated as investment for the purpose of section 80C of the Income Tax Act.
Please Click Here to know more about NSCs and for NSC Accrued Interest Calculator.
Post Office Time Deposit Scheme:
The investment under this scheme in Post Offices is eligible for relief under section 80C of the Income Tax Act w.e.f. the financial year 2007-08 i.e. Assessment year 2008-09.
Please Click Here to know more about the Post Office Time Deposit Scheme.
Post Office Senior Citizen Scheme:
The investment under this scheme in Post Offices is eligible for relief under section 80C of the Income Tax Act w.e.f. the financial year 2007-08 i.e. Assessment year 2008-09.
Please Click Here to know more about the Post Office Senior Citizen Scheme.
Post Office Retiring Govt. Employees Scheme:
The interest income on investments made by retiring/retired Central and State Government employees under this scheme is fully exempt from Income Tax under section 10(15)(iv)(i).
Please Click Here to know more about the Post Office Retiring Govt. Employees Scheme.
Post Office Scheme for Retired PSU Employees:
The interest income on investments made by retired employees of Public Sector undertakings under this scheme is fully exempt from Income Tax under section 10(15)(iv)(i).
Please Click Here to know more about the Post Office Scheme for Retired PSU Employees.
Other Tax Saving Options
Life Inusrance
The premium paid by an individual for life insurance of self or spouse or any child of such individual and the same by a Hindu Undivided Family for life insurance of any member is eligible for deduction from income under section 80C of the Income Tax Act. The maximum deduction available is upto a maximum of Rs. 100,000/- under Section 80C alongwith other investments under section 80C, 80CCC and 80CCD.
The sum received (including the bonus) under a life insurance policy (other than any sum received under sub-section (3) of section 80DDA or under a Keyman insurance policy) is totally tax free.
Please Click Here to know more about the Life Insurance.
Health Insurance:
The investment in health/ medical insurance of self or family members is exempted under Section 80D upto Rs. 20,000/- for senior citizens and upto Rs. 15,000/- for others. An additional relief for health/ medical insurance of parents, Rs. 20,000/- if parents are senior citizen and Rs. 15,000/- for others, is available w.e.f. Assessment Year 2009-10. This relief is in addition to the maximum relief of Rs. 100,000/- available for investments under section 80C, 80CCC and 80CCD.
Please Click Here to know more about the Health Insurance as a Tax Saving Option.
House Property:
The repayment of housing loan upto Rs. 1,00,000/- (inclusive of other investment u/s 80C) qualifies for relief under section 80C of the Income Tax Act.
A further rebate in the form of deduction on accrued interest upto Rs. 1,50,000/- per annum from the total income is available under Section 24 of the Income Tax Act.
Please Click Here to know more about the House Property and Home Loans.
Educational Loans:
Deduction is available under section 80E of Income Tax Act for any amount paid in the previous year by an assessee out of his income chargeable to tax, by way of interest on loan taken by him from any financial institution or any approved charitable institution for the purpose of pursuing his higher education or for the purpose of higher education of his relative (spouse and children).
Please Click Here to know more about the Educational Loans.
Mutual Funds
The investment in Equity Linked Tax Saving Mutual Funds is eligible for deduction under section 80 C of the Income Tax Act. These funds usually have a lock-in period of minimum three years.
The income earned on mutual funds is exempted from Income Tax in the hands of investors.
Please Click Here to know more about the Mutual Funds.
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